What Lies Ahead for the Construction Industry?

I recently attended our annual Board retreat for the Builders’ Exchange of Santa Clara, and came away with some fascinating data – both historical and predictive. As someone who routinely works with contractors, I was intrigued by the statistics and forecast data presented to the group. Here’s a list of my top takeaways from the meeting:

Annual rate of construction spending in the U.S. in 2019 at $338.6B and $985.5B for public and private projects, respectively; represented a 25% increase over 2018, with private projects logging a 34% increase from 2018 (source: November Annual Construction Report for the U.S. Census Bureau). This stat made even more sense as we got to the trends in Northern California/Silicon Valley.

Contradicting that forecast is the prediction overall construction will decline 4% from 2019, with residential down as much as 6%, and non-residential down 3% in dollar value (source:construction.com).

The U.S. construction market has been experiencing an upswing cycle for the last 33 quarters, since 2011, which is over 8.25 years (Jeff Gavin, Electrical Contractor Magazine, January 2020).

Switching gears to the costs side, the 2019 Turner Building Cost Index, which measures costs in the non-residential building construction market, is the highest in the 13-year history of this index (source: Turner Building Cost Index, 2019 Q4). For the last 3 years, construction spending increased 8% but inflation was 14% and although volume decreased by 6%, jobs increased 11% (source: Ed Zarenski, Construction Blog).

Shifting from national trends to California trends, costs of doing business in CA were 13% above the national average and while CA ranked #1 in economic climate, we ranked dismally at #47 in business costs (source: Forbes Best States for Business, Webpage January 2020). Beacon Economics put the backlog for homes in California at 2.3 million housing units in 2017. To keep pace, California needs an average of 180,000 homes per year. (source: Construction Industry Research Board, California Center for Jobs and the Economy, California Public Policy Institute).

Overall construction in CA is predicted to increase 2% from 2019, with residential increasing as much as 9%, and non-residential increasing at 8% (source: ENR Magazine, December 2/9, 2019), which is probably a good thing, given the need for more housing in CA!

The median sale price of a single family home in Santa Clara County in November 2019 was $1,259,000 (source: California Association of Realtors, November 2019 Sales and Price Activity), even as 28,846 homes lay vacant across the county (source: Janice Bitters, San Jose Spotlight, Jan. 23, 2020).

I’ll leave you with a few final pieces of information:

Almost 8M sq. ft. of office space is under construction in Silicon Valley. Related Companies will start an $8 billion project in Santa Clara near Levi’s Stadium, which will cover 240 acres of offices, hotels, residences, park space, and restaurant and retail outlets. It includes 4.4 million sq. ft. of office space. The project is called Related Santa Clara.

Jay Paul is working on a 3.6 million sq. ft. mixed use office campus called CityView Plaza. None of the space has been pre-leased yet (source: San Jose Business Journal).

If you would like a detailed copy of the presentation, please contact me at: dbhat@aslcpa.com. I hope you enjoyed reading about this data as much as I enjoyed listening to it.

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